1999 (12) TMI 760 - SC - VAT and Sales Tax

Court allows revision petition, modifies tax rate on cotton belting. State lacks authority to change declared goods.

Commissioner of Sales Tax, UP. Versus Agra Belting Works (and cross appeal)

The revision petition was allowed, modifying the tax rate on cotton belting to 4% as the State lacked authority to change the character of declared goods ... Whether a notification issued under section 3-A negatived an exemption granted by an earlier notification under section 4 of the Act? Held that:- Appeal filed by the sales tax authorities dismissed. Learned counsel for the State Government is unable to tell us whether there is or is not such notification. The High Court had decided as far back as in 1994 that the cotton belting made by the assessee was covered by section 14 of the Central Act. Since then, and certainly after the assessee filed the special leave petition in this Court in 1996, this aspect was, or ought to have been, before the sales tax authorities. If there is no answer in this regard to date, it must be presumed that there is no such notification. Consequently, no tax can be levied and the order under appeal to the extent that it states that the turnover of the assessee's cotton belting is taxable at the rate of four per cent, must be set aside. Issues:1. Taxability of turnover under the U.P. Sales Tax Act.2. Whether cotton belting is a declared good under the Central Sales Tax Act.3. Authority of the State to change the character of declared goods.4. Interpretation of section 14 of the Central Sales Tax Act.5. Existence of notification fixing the single point of sale and rate of tax under section 3-AA of the U.P. Sales Tax Act.Issue 1: Taxability of turnover under the U.P. Sales Tax ActThe dealer, a manufacturer of cotton pattas, claimed exemption from sales tax under a U.P. Sales Tax Act notification. However, the Sales Tax Tribunal denied the exemption, upholding taxability at a rate of 7%. The revision petition challenged the taxability, specifically regarding cotton belting as a cotton fabric, a declared good under the Central Sales Tax Act. The Tribunal failed to address this point, leading to the revisionist's appeal.Issue 2: Cotton belting as a declared good under the Central Sales Tax ActThe contention was whether cotton belting, manufactured by the dealer, qualifies as a cotton fabric, a declared good under section 14 of the Central Sales Tax Act. Previous judgments confirmed that cotton belting falls under the category of cotton fabric. The State's attempt to change the character of declared goods was deemed untenable, as the State lacks authority to alter the status of declared goods.Issue 3: Authority of the State to change the character of declared goodsIt was established that once an item falls under the category of declared goods, the State cannot impose a tax exceeding 4%. The Tribunal erred in not deciding this legal question, leading to the revision petition being allowed, modifying the tax rate on cotton belting to 4%.Issue 4: Interpretation of section 14 of the Central Sales Tax ActThe interpretation of section 14 of the Central Sales Tax Act was crucial in determining whether cotton belting qualifies as a cotton fabric. The court held that the list in section 14 is exhaustive, but the description of items within the list is illustrative, not exhaustive. The definition of cotton fabrics includes all varieties manufactured from cotton, encompassing cotton belting.Issue 5: Existence of notification under section 3-AA of the U.P. Sales Tax ActThe appeal by the assessee highlighted the absence of a notification fixing the single point of sale and rate of tax under section 3-AA of the U.P. Sales Tax Act. The lack of such notification implied that no tax could be levied on the turnover of cotton belting, leading to the appeal being allowed and the tax authorities' appeal being dismissed.